Investment Climate Statement

The South Korean government has substantially removed restrictions on financial transfers into and out of South Korea. Prior to 1999, the Foreign Exchange Control Act and associated regulations strictly regulated foreign exchange transactions. The South Korean government subsequently liberalized transactions in medium-and long-term overseas borrowings, purchase and sale of local real estate, and trading in over-the-counter (OTC) stocks and bonds.

In 1999, the Foreign Exchange Transaction Act (FETA) fully liberalized all current-account transactions by business firms and banks, and pared down a formerly long list of restricted transactions to five items, most of which cover foreign exchange transactions by individuals. A second-stage liberalization dismantled most of the remaining restrictions in 2001. Only transactions that could harm international peace or public order, such as money laundering and gambling, remain controlled. Three specific types of transactions were not liberalized:

1) Non-residents are not permitted to buy won-denominated hedge funds, including forward currency contracts;

2) The Financial Services Commission will not permit foreign currency borrowing by "non-viable" domestic firms; and

3) The South Korean government will monitor and ensure that South Koreans firms that have extended credit to foreign borrowers collect their debts. The South Korean government has retained the authority to re-impose restrictions in the case of severe economic or financial emergency.

Capital account liberalization under the Foreign Exchange Transaction Act has also been extensive. All capital-account transactions are permitted unless specifically prohibited. In addition, 72 of the 91 transactions specified by the OECD code of liberalization of capital movements now are permitted. Non-residents may open deposit accounts in domestic currency (won) with maturities of more than one year and may engage in offshore transactions and issue won-denominated securities abroad.

The right to remit profits is granted at the time of original investment approval. Banks control the now pro forma approval process for FETA-defined open sectors. For conditionally or partially restricted investments (as defined by the FETA), approval for both the investment and remittance rests with the relevant ministry.

When foreign investment royalties or other payments are proposed as part of a technology licensing agreement, the agreement and the projected stream of royalties must be approved either by a bank or the Ministry of Strategy and Finance (MOSF.) Again, approval is virtually automatic. An investor wishing to enact a remittance must present an audited financial statement to a bank to substantiate the payment. To withdraw capital, a stock valuation report issued by a recognized securities company or the South Korean appraisal board also must be presented. Foreign companies seeking to remit funds from investments in restricted sectors must first seek ministerial and bank approval, after demonstrating the legal source of the funds and proving that relevant taxes have been paid.

Serious investment disputes involving foreigners are the exception rather than the rule in South Korea. There exists a body of South Korean law governing commercial activities and bankruptcies that constitutes the means to enforce property and contractual rights, with monetary judgments usually levied in the domestic currency. Foreign court judgments are not enforceable in South Korea.

Although commercial disputes can be adjudicated in a civil court, foreign businesses often feel that this is not a practical means to resolve disputes. Proceedings are conducted in South Korean, often without adequate translation. South Korean law prohibits foreign lawyers who have not passed the South Korean Bar Examination from representing clients in South Korean courts. Civil procedures common in the United States, such as pretrial discovery, do not exist in South Korea. During litigation of a dispute, foreigners may be barred from leaving the country until a decision is reached. Legal proceedings are expensive and time-consuming and lawsuits often are contemplated only as a last resort, signaling the end of a business relationship.

Commercial disputes may also be taken to the South Korean Commercial Arbitration Board (KCAB). The South Korean Arbitration Act and its implementing rules outline the following steps in the arbitration process: 1) parties may request the KCAB to act as informal intermediary to a settlement; 2) if unsuccessful, either or both parties may request formal arbitration, in which case the KCAB appoints a mediator to conduct conciliatory talks for 30 days; and 3) if unsuccessful, an arbitration panel consisting of one or three arbitrators is assigned to decide the case. If one party is not resident in South Korea, either may request an arbitrator from a neutral country.

When drafting contracts, it may be useful to provide for arbitration by a neutral body such as the International Commercial Arbitration Association (ICAA). U.S. companies may wish to seek local expert legal counsel when drawing up any type of contract with a South Korean entity.

South Korea is a member of the International Center for the Settlement of Investment Disputes (ICSID). It has also acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). South Korea is a member of the International Commercial Arbitration Association and the World Bank's Multilateral Investment Guarantee Agency (MIGA). It is important to keep in mind that South Korean courts may ultimately be called upon to enforce an arbitrated settlement.

South  Korea does not maintain any measures notified to the World Trade Organization (WTO) as being inconsistent with TRIMs requirements, nor does the ROKG maintain any measures that are alleged to violate the WTO's TRIMs text. South Korea ceased imposing performance requirements on new foreign investment in 1989 and eliminated all pre-existing performance requirements in 1992. The ROKG has no requirement that investors purchase from local sources or export a certain percentage of output. There is no ROKG requirement that South Korean nationals must own shares in foreign investments or that technology be transferred on certain terms. The South Korean government does not impose "offset" requirements on investors to invest in specific manufacturing, R&D or service facilities. There are also no government-imposed conditions on permission to invest.

The South Korean government allows the following general incentives for foreign investors:

• Cash grants for the creation and expansion of workplaces for high-tech business plants and R&D research centers;

• Reduced rent for land and site preparation for foreign investors;

• Grants for establishment of convenience facilities for foreigners;

• Reduced rent for state or public property; and

Preferential financial support for investing in major infrastructure projects.

South Korea fully recognizes rights of private ownership and has a well-developed body of laws governing the establishment of corporate and other business enterprises. Private entities may freely acquire and dispose of assets; however, the Fair Trade Act may limit cross-ownership of shares in two or more firms if the effect is to restrict competition in a particular industry.

South Korea liberalized its property ownership law in 1998. The Alien Land Acquisition Act (as amended) grants even non-resident foreigners and foreign corporations the same rights as South Koreans in purchasing and using land. South Korea took further steps to liberalize its property ownership laws by implementing the Real Estate Investment Trust (REIT) Act in 2001, which supports sound indirect investments in real estate and restructuring of corporations. The REIT Act allows investors to invest funds through an asset management company, and in real property such as office buildings, business parks, shopping malls, hotels and serviced apartments.

Almost no restrictions remain on foreign ownership of stock in South Korean firms. As of 2000, South Korean law permits foreign direct investment through mergers and acquisitions with existing domestic firms, including hostile takeovers. Nonetheless, no hostile takeovers have occurred in South Korea in part because of the lack of relevant implementation regulations for the Foreign Investment Promotion Act. In addition, the political environment for hostile takeovers remains unfriendly. In December 2009, the Ministry of Justice proposed poison pill legislation that would protect domestic companies from hostile foreign takeover bids. The National Assembly will review the bill in the 2010 spring session.

South Korea’s progress on Intellectual Property Rights led to its removal from the Special 301 Watch List in 2009. The importance of IPR protection has increased in recent years as the digitization of South Korea’s economy has significantly enhanced the ability to produce and spread unauthorized reproductions of copyrighted material. With South Korea’s products and trademarks enjoying global success, South Korean creators of intellectual property stand to benefit from improvements in the domestic intellectual property regime. In addition, although significant progress has been made, concerns remain with respect to book piracy in universities, street vendor sales of illegally copied DVDs, counterfeiting of consumer products, protection of undisclosed test and other data for pharmaceutical marketing approval, and a lack of coordination between South Korean health and IPR authorities to prevent the issuance of marketing approvals for patent infringing products.

The Ministry of Culture, Sports, and Tourism (MCST) amended its Copyright Law in July 2009 to include a “Three Strikes” program against illegal file-sharing. Under the amended law, users who download illegally will be sent a warning letter, which counts as a strike. Three strikes will lead to a suspension of that user’s internet account by the Internet Service Provider. In December 2009, MCST reported that the South Korea Copyright Commission has issued 19,800 corrective recommendations since the law was amended. No corrective orders to suspend a user’s internet account have been issued.

In 2009, the ROKG, coordinated by MCST, continued its progress on IPR enforcement in several areas, and appears to remain committed to fighting piracy in its various forms. However, MCST’s staff shortfall affects its software piracy efforts and remains a concern. The staff cuts date back to the integration of the Ministry of Information and Communication into MCST as part of President Lee’s governmental reorganization. MCST is currently requesting increased funding and staff from the Minister of Public Administration and Security.

MCST has stressed that despite the decrease in staff, it has made efforts to ensure that all central and municipal government agencies are using properly licensed software, and next year plans to carry out a similar review at the corporate level. In the meantime, MCST plans to provide a counseling service for corporations so that they properly manage their software licenses.

MCST held its second annual 100-day campaign against off-line pirated copyrighted material, known as the “100 Day Seoul Clean Project,” from April until August of this year. MCST noted it plans to continue this project on an annual basis. During the 100 Day Seoul Clean Project, MCST and South Korean law enforcement raided street vendors and stores selling pirated DVDs, CDs, software, and books. According to MCST’s statistics, seizures of pirated material increased 24 percent to 214,199 illegal items, and prosecutions increased 46 percent to 544 cases, compared to the numbers from last year’s campaign. Additionally, MCST has promised to carry out anti-book piracy enforcement activities on South Korean campuses at the beginning of semesters.

The ROKG has also demonstrated a renewed commitment to investigating and prosecuting "topsites." Little known to the general public, topsites are computer servers that hold tens of thousands of pirated software, games, music and movie files. ROKG ministries met with music industry stakeholders to discuss investigatory techniques. The ROKG has expressed to US Embassy Seoul its intention to carry out enforcement actions against topsites.

South Korean patent law is a “first to file” regime. Although the law is fairly comprehensive and affords protection to most products and technologies, a U.S. company must be registered with the South Korean Intellectual Property Office (KIPO) to obtain legal protection. KIPO has amended relevant laws regarding restrictions on patent term extension for certain pharmaceutical, agrochemical, and animal health products that are subject to lengthy clinical trials and domestic testing requirements. An issue of continuing concern, however, has been the lack of coordination between the South Korean Food and Drug Administration and KIPO and related issues that have resulted in the granting of marketing approval for unauthorized copies of pharmaceutical products.

South Korea’s Trademark Act has been amended to strengthen provisions that prohibit the registration of trademarks without the authorization of foreign trademark holders by allowing examiners to reject any registrations made in "bad faith." Despite this change, the complex legal procedures that U.S. companies must follow to seek cancellation have discouraged U.S. companies from pursuing legal remedies. In particular, problems still arise with respect to "sleeper" trademark registrations filed and registered in South Korea without authorization in the late 1980s and early 1990s, when KIPO was still developing a more effective and accurate trademark examination and screening process.

South Korean laws on unfair competition and trade secrets provide a basic level of trade secret protection in South Korea, but are insufficient in some instances. For example, some U.S. firms, particularly certain manufacturers of chemicals, pet food, cosmetics, and food products, face continuing problems with government regulations requiring submission of very detailed product information, such as formula or blueprints, as part of registration or certification procedures. U.S. firms report that, although the release of business confidential information is forbidden under South Korean law, in some instances, government officials do not sufficiently protect this proprietary information, and trade secrets appear to have been made available to South Korean competitors or to their trade associations.

Investors and financial markets remain wary of corporate governance in South Korea despite significant improvements since the 1997-98 Asian financial crisis. Concerns about corporate governance often reduce the price/earnings ratios to levels lower than comparable companies elsewhere. South Korean policy makers acknowledge that foreign investors often exact a "South Korea Discount" when dealing with South Korean companies or in making investment decisions. As the Chairman of the South Korean Free Trade Commission (KFTC) stated in 2005, "the main reasons for the South Korea Discount are opaque accounting techniques, less respect for minority shareholders, insufficient openness and excessive control by controlling families."

Large gaps exist between the ownership and control of a significant number of firms in South Korea, with many traditional "chaebol" conglomerates still controlled by their founding families, despite the family's relatively small ownership stakes. South Korea's accounting reform plan and Code of Best Practices are admirable efforts, but more can be done in these areas as well. Increasing participation by foreign investors and stockholders, modernizing business-government relations, and infusing professionalism in the corporate culture could go a long way toward improving corporate governance.

South Korea's development strategy in the latter part of the 20th century, which transformed the country from one of the poorest nations in the world to a member of the OECD, created a number of structural legacies that increased the country's vulnerability during the 1997-1998 Asian financial crisis. At that time, South Korea's generally weak corporate governance framework was compounded by a history of government-directed financing, creating significant "moral hazard" -- that is, the assumption that government would make good all losses and not permit large companies to fail. This allowed large segments of the corporate sector to become excessively leveraged, increasing vulnerability. South Korea responded to the financial crisis by implementing a number of corporate reforms that improved accounting transparency, promoted corporate restructuring, and strengthened the nation's insolvency framework. Nonetheless, corporate governance reforms remain incomplete.

Although the Anti-Monopoly and Fair Trade Act has been amended repeatedly – most recently in March 2009 -- the practical impact of South Korea's laws and policies regulating monopolistic practices and unfair competition, however, has been limited by the long-standing economic strength of the chaebol. Management control at the South Korean chaebol continues to involve complicated webs of cross-shareholdings among chaebol affiliates, and many chaebol still conduct business based on family and personal connections. Vestigial chaebol-government relations can also sometimes influence the business-government dialogue, to the detriment of foreign and small and medium-sized enterprises (SME's). Thus, chaebol influence in the South Korean economy may sometimes cause practical business problems for foreign investors. SME suppliers, for example, may be reluctant to deal with foreign firms for fear of jeopardizing a prized chaebol relationship. Obtaining access to credit may be complicated by the privileged relationships competing chaebol enjoy with local banks -- although this is mitigated by the fact that regulations limit a bank's exposure to any single chaebol group's companies to 25 percent of capital, and stipulate that 25 percent of all banks' lending, at least, must go to SME's.

There are several large South Korean corporations that have transformed themselves into well-managed multinational corporations that have adopted "best practices" in corporate governance consistent with U.S. and international standards. Some of their "best practices" include more frequent board meetings covering real operational issues; boards with more independent board members and fewer or no founding family members; a nominating committee for the board; financial report certifications; and frequent and substantive outside audits.

Foreign ownership is also playing a significant role in promoting corporate governance reform in South Korea. South Korean firms with significant foreign investment, for example, are generally understood to be more reluctant to participate in government-sponsored bailouts of troubled firms, impacting the evolution of South Korean financial markets. As foreign investors now own about 60 percent of the shares in some of South Korea's top companies and nearly 33 percent of stock listed on South Korea's main stock exchange, the rights of minority and non-South Korean stockholders are becoming more clearly expressed.

Under South Korea’s 2005 Securities Class Action Act, minority shareholders are able to file class action suits for manipulation of share prices, false disclosure of information, and accounting malpractice. The first class-action suit was filed in April 2009 by 1700 shareholders against Jinsung, a KOSDAQ-listed maker of machine parts, for losses allegedly caused by accounting fraud. The case settled out of court in January 2010 for approximately USD 2.5 million.

The South Korean government is currently implementing an accounting reform plan, taken largely from the U.S. Sarbanes-Oxley Act, aimed at making South Korean accounting standards consistent with rigorous international standards. Under the 2007 roadmap, the International Financial Reporting Standards (K-IFRS) will become South Korea’s Generally Accepted Accounting Principles by 2011. In parallel, a committee of South Korean private sector experts has established a Code of Best Practices in response to a tasking by the finance ministry. The voluntary recommendations included in this Code are in line with OECD principles, and the South Korea Exchange (KRX) has reinforced the importance of the Code by requiring that companies listed on the South Korea Stock Exchange (KSE) provide information to investors about the extent to which they conform to the Code. Following are some of the key recommendations contained in the Code of Best Practices:

• Easing of ownership thresholds to allow small shareholders greater rights to inspect company books;

• Having outside or independent directors make up at least half (rather than a quarter) of the board members of listed companies;

• Establishing a nominating committee to choose board members, with at least half of the committee consisting of outside directors;

• Ensuring that outside directors are truly independent, with no interests in the company, the management, or the controlling shareholder;

• Having the board of directors meet at least once every three months; and

• Requiring that companies have audit committees consisting of at least three directors, of which two-thirds are outside directors.

The South Korean regulatory environment can pose challenges for all firms, both foreign and domestic. Laws and regulations are often framed in general terms and are subject to differing interpretations by government officials, who rotate frequently. This creates frustrations for foreign investors that are looking for certainty in the South Korean market. The KORUS FTA includes many provisions designed to address such issues.

The South Korean government may restrict investments which disrupt production of military products or equipment, or if the company the foreigner is investing in exports items that may be later used for military purposes differing from their originally intended use. Foreigners linked to a country or an organization that may pose a threat to national security will also be subject to limitations on their investments in South Korean firms. Related government agencies must ask MKE to review the case within 30 days of a foreign investor filing an application for regulatory approval, and MKE needs to make a decision within the following 90 days. Older bureaucratic practices designed to influence the decisions of businesses and investors through prescriptive regulations are sometimes still encountered.

According to South Korea's Administrative Procedures Act, proposed laws and regulations (Acts, Presidential Decrees or Ministerial Decrees) should be published and public comments solicited for at least 20 days prior to promulgation. Draft bills are often available on the web sites of relevant ministries, without notice that they have been published. The rule-making process often remains non-transparent, particularly for foreigners. Proposed rules are sometimes published with insufficient time to permit public comment and industry adjustment. For example, regulatory changes originating from legislation proposed by members of South Korea's National Assembly are not subject to public comment periods. When notifications of proposed rules are made public, they usually appear in the Official Gazette, but not consistently, and only in the South Korean language; thus, much of the 20-day comment period can be exhausted translating complex documentation.

President Lee Myung-bak has made regulatory reform one of the key elements of his economic policy, and progress is expected to be gradually achieved. President Lee established and heads the National Competitiveness Committee to identify measures to improve South Korea’s competitiveness, including regulatory reform. Likewise, the Prime Minister’s Deregulation Taskforce Team, the Corporate Resolution Center and the standing Regulatory Reform Committee focus on regulatory reform as well.

Financial sector reforms are often cited as one reason for the ROK’s rapid rebound from the global financial crisis. Financial sector reforms have aimed to increase transparency and investor confidence, and generally purge the sector of moral hazard. Since 1998, the South Korean government has recapitalized the banks and non-bank financial institutions; closed or merged weak financial institutions; resolved many non-performing assets; introduced internationally-accepted risk assessment methods and accounting standards for banks; forced depositors and investors to assume appropriate levels of risk; and taken steps to help end the policy-directed lending of the past. These reforms addressed weak supervision and poor lending practices in the South Korean banking system that helped cause and exacerbate the 1997-98 Asian financial crisis.

In the course of stabilizing South Korea's banking sector during the Asian financial crisis, the South Korean government injected public funds, thereby acquiring de facto ownership of many of South Korea's commercial banks -- although it publicly committed to refrain from interfering in bank lending and management decisions, except with regard to prudential supervision. In late 2002, the South Korean government began its ambitious plan to re-privatize the banks under its control, with the program initially scheduled to end by the first quarter of 2005. Much of this re-privatization has taken place, although the government continues to own the majority of shares in Woori Bank and minority shares in some other banks. Foreign banks are allowed to establish subsidiaries or direct branches. Further relaxation of regulations has widened foreign access to South Korea's capital markets and permitted foreign financial firms to engage in non-hostile mergers and acquisitions of local financial institutions. Currently, foreign interests control three of South Korea's eight major commercial banks: Citibank South Korea (formerly KorAm Bank); South Korea Exchange Bank and SC/South Korea First Bank.

South Korea routinely permits the repatriation of funds, but reserves the right to limit capital outflows in exceptional circumstances, such as situations when uncontrolled outflows might harm the balance of payments, cause excessive fluctuations in interest or exchange rates, or threaten the stability of domestic financial markets. The South Korean government did not impose such restrictions either during the Asian financial crisis or the global financial crisis, where sharp capital outflows played a major role.

Foreign portfolio investors now enjoy good access to the ROK stock market. Aggregate foreign investment ceilings in the South Korean Stock Exchange (KSE) were abolished in 1998, and foreign investors owned 32.6 percent of KSE stocks and 7.8 percent of the KOSDAQ as of the end of 2009. The market turnover rate was 199.56 percent of market capitalization in 2009. Retail investors are extremely active in the South Korean stock markets. More than 80 percent of KSE and KOSDAQ retail trading is conducted online. Thus, a large majority of retail investors are day traders, implying a constant source of volatility for the markets. The South Korean government permits stock purchases on margin, requiring that transactions be settled within three business days.

Portfolio investors have shown less appetite for the smaller, more volatile, technology-rich KOSDAQ or for South Korean fixed-income investments. Since the 1999 collapse of the Daewoo Group in 1999, South Korea's largest corporate bankruptcy, the country's bond market has been almost moribund, as sellers have far outnumbered buyers. The total assets of South Korea's commercial banks as of the end of September 2009 were 1,177 trillion won, or about USD 1.1 trillion.

Short-term interest rates, at around 2.6 percent, remain competitively high. Inflation, meanwhile, remained at 2.8 percent throughout 2009. The spread between short-term money (the overnight call rate) and long-term money (the benchmark 3-year corporate bond rate) rose from its 54-plus basis points maximum in 2007 to 153-basis points in 2008 to 318-basis points in 2009. As a countermeasure against financial instability and potential economic recession, the Bank of South Korea (BOK) cut its target rate six times by 325-basis points from 5.25 percent in August 2008 to a record-low level of 2.0 percent in February 2009.

South Korea boasts a hard-working, educated and productive workforce and high levels of legal labor rights and protections. Nevertheless, foreign investors cite volatile labor-management relations as an investment impediment. According to a 2009 World Economic Forum study, South Korea fell from 13th to 19th place in the world in terms of overall competitiveness, partly due to what the WEF report characterized as an inflexible labor market. Although, at 10.5 percent as of 2008, South Korea's unionization rate is not especially high, unions are forceful in making demands on wages, benefits, and working conditions.

Some South Korean analysts argue that more attention should be paid to finding ways to promote labor mobility while stimulating the job market. One problem, according to some academics, is the standard practice of promoting within companies. Workers’ inability to secure employment at an equivalent wage and rank at another company negatively impacts labor mobility. Exploring ways to better connect workers with employers could promote labor market efficiencies. Vocational training in South Korea lags behind other countries with a similar level of development. Current programs could target their participants more carefully, keep the training programs small in scale, and ensure that the training results in a qualification that the market recognizes and values.

Reforms in the pension system would also help labor mobility. In the South Korean system, government employees and schoolteachers can carry their pension rights when they quit one occupational plan and enter another. But there are no such linkages between the National Pension Scheme (NPS) and occupational pensions. The lack of portability puts such relatively mobile workers at a disadvantage and discourages movement between the public and private sectors. More broadly, South Korea lacks a portable 401(K)-type system for corporate pensions.

Although the South Korean government, labor, and management sectors still struggle to resolve conflict, there are mechanisms in place to improve communication. The previous administration instituted a Tripartite Commission (Labor, Employers and Government) to address dysfunctions in the labor sector. The Federation South Korean of Trade Unions (FKTU), one of South Korea’s two umbrella union organizations, regularly participates in negotiations with government and labor and, in response to the global financial crisis, agreed to a “social pact,” limiting demands for wage increases in return for management’s promise to avoid lay-offs. Nevertheless, the other labor federation – the South Korean Confederation of Trade Unions (KCTU) – refused to negotiate with the government and management and conducted strikes throughout the year with more planned for 2010. On January 1, 2010, the National Assembly passed a labor reform law governing the timing for implementing two controversial changes first approved by the legislature in 1997. Without such revisions, both changes would have automatically become effective in January 2010. Under the revised law, however, new restrictions banning companies from paying wages to full-time union leaders will be implemented from July 2010 and the ability to form multiple unions at a single workplace will go into effect in July 2011.

Gradual implementation of the five-day workweek began in July 2004 and 49.8 percent of employees are actually working under the system as of August 2009. As part of this implementation plan, the system was expanded to the public sector in July 2005.

South Korea joined the International Labor Organization (ILO) in December 1991. However, South Korea still has not ratified the basic ILO conventions on Workers Rights (Convention 87 on freedom of association, Convention 98 on the right to organize and collective bargaining, and Convention 151 on public service employees' right to organize), and a number of international and domestic labor groups have filed complaints against the South Korean government with the ILO's Committee on Freedom of Association.

In 1997, South Korea amended its labor laws to permit more than one national labor federation. South Korea now has two national federations, the South Korean Confederation of Trade Unions and the Federation of South Korean Trade Unions, along with some 1,600 distinct labor unions. Also, in 1997, the government repealed its ban on intervention by "third parties" in labor disputes, thus enabling labor unions to seek outside assistance and counsel.

Despite significant improvements in recent years, South Korea's political structure still tolerates a degree of non-transparency in the formation of laws and regulations. When combined with still-inadequate institutional "checks and balances" and a societal structure heavily based on personal ties, opportunities and incentives for corruption and influence peddling sometimes occur.

Bribing a South Korean official is a criminal act. Penalties for bribery range from probation to life imprisonment, depending on the amount involved. Legislation has been approved bringing South Korea into compliance with the OECD initiative against international bribery. The Supreme Prosecutor in each province is responsible for ferreting out corruption. Many business leaders and officials, including former ministers and former presidents, have been found guilty of corruption in recent years, sometimes for offenses committed years earlier. Few have paid heavy fines or served much time in prison. Amid spreading public sentiment denouncing bribery and corruption, particularly after the April 2000 general legislative election, civic groups have become very vocal and achieved considerable progress by identifying supposedly "corrupt" officials and working against their re-election. Public outrage helped propel Roh Moo-hyun, viewed by many as an untainted outsider, to the presidency in 2003. Roh's campaign to curb corruption notwithstanding, Roh was indicted after he left office in 2008 for corruption and in 2009 committed suicide in the midst of the investigation.

The controversial Anti-Corruption Law passed by the National Assembly in 2002 is now in effect. Most notably, this law created the South Korea Independent Commission against Corruption (KICAC), which was semi-autonomous and empowered to investigate public complaints of corruption at every level of government. The Anti-Corruption & Civil Rights Commission (ACRC) was launched in 2008 by integrating the Ombudsman of South Korea, the KICAC and the Administrative Appeals Commission. With the consolidation of these three organizations, the public is provided with one-stop service to address public complaints, file administrative appeals and fight corruption. The ACRC assesses the levels of integrity of public sector organizations each year by surveying citizens. The ACRC also evaluates the anti-corruption initiatives taken by public organizations on a regular basis. The ACRC makes recommendations to help government entities to amend ambiguous, corruption-prone laws and intuitions, and periodically asses the implementation of recommendations. It is also conducting the Corruption Impact Assessment (CIA), an analytical mechanism designed to indentify and remove corruption-causing factors in advance in laws and regulations.

The National Assembly passed an Anti-Money Laundering Bill in 2001. That legislation met the objectives of the Financial Action Task Force on Money Laundering's forty recommendations, and created a Financial Intelligence Unit (FIU) to trace suspect accounts and transactions and to facilitate international cooperation. The government has cooperated fully with U.S. and United Nations efforts to identify and shut down sources of terrorist financing.

The United States has a bilateral Treaty of Friendship, Commerce, and Navigation with South Korea, which contains general provisions pertaining to business relations and investment. During former South Korean President Kim Dae-jung's visit to the United States in 1998, President Clinton and President Kim agreed to negotiate a Bilateral Investment Treaty (BIT) between the two nations. However, negotiations in 1998 and 1999 stalled after the two sides could not resolve differences on certain issues. The South Korea-U.S. FTA contains strong, enforceable investment provisions that will go into force if the agreement is approved and implemented.